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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3895
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I have an LLC that I formed last year, which had no prior business

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I have an LLC that I formed last year, which had no prior business activity of Any kind. I now have a contract in the name of that LLC. However, through some research, I was able to determine that a good portion of the right offs that I was looking to claim would be executed more effectively as an LLC with the S-Corp election. So, I need to file a 2553, but I want to make certain that my letter files a simple and clear format that would allow for me to have my election back dated to the beginning of this year.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor : Hi, please don't shoot the messenger here but read this from IRS:
NPVAdvisor : When To Make the ElectionComplete and file Form 2553:• No more than two months and 15 days after the beginningof the tax year the election is to take effect, or• At any time during the tax year preceding the tax year it isto take effect.
NPVAdvisor : Soory to be the messenger of bad news, but hopefully having all the fact will help you see around some corners
NPVAdvisor : Here's the IRS guidance
NPVAdvisor : http://www.irs.gov/uac/Form-2553,-Election-by-a-Small-Business-Corporation
NPVAdvisor : Maybe I can help you thing thrugh why the LLC might not be such a bad idea
NPVAdvisor : Other than payroll, self employement taxes, etc bopth are still passthroughs (no tax at the company level)
NPVAdvisor : With the LLC, you'll have salary and dividends
NPVAdvisor : sSORRY that was the S-Corp
Customer: I have already spoken to the IRS directly, which advised me of the following:Filing Pursuant to Rev Proc 2003-43 procedure
NPVAdvisor : and with the LLC it's all self employment income
NPVAdvisor : ]but BOTH can take essentially then same legitinate business ndeductions
NPVAdvisor : You didn't tell me that
NPVAdvisor : SO, now that we're here
NPVAdvisor : If you've spoken to them, what exactly is it that you want to know?
NPVAdvisor : AND what kinds of deductions will be executed more effectively as an S-Corp
Customer: http://biztaxtalk.com/node/6
NPVAdvisor : Generally speaking here are the criteris, so if you tick them off one by one in the letter, you should be find
NPVAdvisor : The corporation meets the S-Corporation eligibility criteria,The corporation intended to be classified as an S-Corporation as of the intended effective date of the S-Corporation election,The corporation failed to qualify as an S-Corporation solely because it did not file Form 2553 in a timely manner,Less than 24 months have passed since the original due date of Form 2553,The corporation either has reasonable cause or inadvertently failed to file Form 2553 in a timely manner,The corporation has not yet filed tax returns for the first tax year for which it intended to file as an S-Corporation, or the corporation has filed its first tax return using Form 1120S and the shareholders properly reported their share of income in a manner consistent with the corporation's intention to be an S-Corporation,Form 2553 is filed not later than 6 months after the due date (without regard to extensions) of the first tax return for which the corporation intended to file as an S-Corporation, andShareholders and other taxpayers have not reported their income in a manner inconsistent with the corporation's intention to file as an S-Corporation.
NPVAdvisor : Sorry, my formatting didn't transfer well let me see if I can give you myn list a little differently:
NPVAdvisor : The corporation meets the S-Corporation eligibility criteria,
NPVAdvisor : .
NPVAdvisor : The corporation intended to be classified as an S-Corporation as of the intended effective date of the S-Corporation election,
NPVAdvisor : .
Customer: I was looking for template or format of the letter that I need to submit to the IRS which accompanies the 2553and I have confirmed that I meet the eligibility criteria
NPVAdvisor : The corporation failed to qualify as an S-Corporation solely because it did not file Form 2553 in a timely manner,
NPVAdvisor : .
NPVAdvisor : Less than 24 months have passed since the original due date of Form 2553,
NPVAdvisor : let me go ahead and dup this on you ... as I think it will show good due diligence on addressing each of the criteria...
NPVAdvisor : .
NPVAdvisor : The corporation either has reasonable cause or inadvertently failed to file Form 2553 in a timely manner,
NPVAdvisor : .
NPVAdvisor : The corporation has not yet filed tax returns for the first tax year for which it intended to file as an S-Corporation, or the corporation has filed its first tax return using Form 1120S and the shareholders properly reported their share of income in a manner consistent with the corporation's intention to be an S-Corporation,
NPVAdvisor : .
NPVAdvisor : Form 2553 is filed not later than 6 months after the due date (without regard to extensions) of the first tax return for which the corporation intended to file as an S-Corporation
NPVAdvisor : .
NPVAdvisor : and finally,
NPVAdvisor : Shareholders and other taxpayers have not reported their income in a manner inconsistent with the corporation's intention to file as an S-Corporation.
NPVAdvisor : I had a client that used this as the template for her letter (wul a paragraph fo each showing example.... and she had nop problem
NPVAdvisor : (sorry for the typos)
NPVAdvisor : The only ting I would add is when you do the 2553....
NPVAdvisor : Write, at the top, FILED PURSUANT TO REV. PROC. 2003-43"
NPVAdvisor : And remember, if there are other shareholders, that both Form 2553 and the attached statement must be signed by each and every single shareholder.
Customer: While I appreciate your effort, I am not looking for the rules; I found those.What I am looking for is an example letter that someone has used to file a late 2553 which references the Rev Proc 2003-43 exception.
NPVAdvisor : again, what I have given you s the best practice ...
NPVAdvisor : (1) write at the top of the form as I have directed
NPVAdvisor : (2) use each of the rules as the first sentence in a paragraph of the letter
NPVAdvisor : Only YOU can include the details in each paragraph as to why YOU satisfy the rule
NPVAdvisor : That IS be letter format
Customer: Great, but that is NOT what I was requesting.
NPVAdvisor : Would it help if I did the letter (and left blank lines in each of the paragraphs where you need to fill in your details?
Customer: Possibly, but at this point, I am not certain that there would be enough business value in it for you.
NPVAdvisor : sOK, can be done very easily, the very best forma ti simply to address each of their rules ... (matches up very easily with how they'll mcheck it
NPVAdvisor : Tell you what, I'll move us to Q&A mode (where we can still continue a dialoge) just not in real time ... give me 30 minutes, and I'll post a link in my google drive where the letter will be
Customer: I agree. My point was that I wanted to make sure I could just focus on adding the appropriate business detail [according to my situation] and that I could reference such a document again for additional firms
Customer: NOW that WOULD BE GRAND. I appreciate that very much
Customer: correction: additional firms THAT I FILE FOR MY VENTURES
Customer: Sorry. I didn't mean to imply I would resell your work without your permission
NPVAdvisor : I think this will do it ... again, in my experience it's all about procedure ... and a letter that addresses each of those 8 rules, where each rule IS the beginning of the paragraph, followed by the specifics of how the company meets them ... will always pass muster ... because all they're doing is checking that letter against that ribruk
NPVAdvisor : sorry rubrik (their checklist)
NPVAdvisor : than that along with the "heads-up" notice at the top of the 2553 that it's ... FILED PURSUANT TO REV. PROC. 2003-43 ... gets it pas the front lines
NPVAdvisor : No no, feel free to use
NPVAdvisor : this isn't really rocket science
Customer: Gotcha. I am big on process and procedure as well, but this is one of those things where it is simple if you have the background, but when you can't afford to make a mistake, I need it right the first time without exception.
Customer: And I am pressed for time.
Customer: Personally and Professionally.
NPVAdvisor : I agree .... step one (from the IRS' perspective is to get it past the front lines without it getting kicked back and step two isto be sure to address each and every rule in the letter
NPVAdvisor : It's 2:26 eastern here ... give me untl 2:50 ( gives me a little cushion) and check back here .... feel free to bookmark the URL
NPVAdvisor : sorry typo (2:16)
Customer: Thanks. I appreciate that. I have Baby Shower my wife is pressing me to attend so this really is a life saver as the first day of work/execution on the contract is tomorrow, and it is firm that I could expand my relationship with so I want to be focused on IT Solution Design and not my firms Tax Compliance.
NPVAdvisor : just give me the OK
Customer: Done.
NPVAdvisor : No problem
NPVAdvisor : just check back here....
NPVAdvisor : switching to Q&A mode now, it wll ask you to rate, but wait until you've gotten the letter and instructions
Expert:  Lane replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

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Expert:  Lane replied 1 year ago.


Donovan:

I am pasting the letter here, but will also post to my Google Drive for you:




Attachment Statement, Form 2553, (pursuant to Revenue Procedure 2003-43)

This statement is to explain that the corporation inadvertently failed to file form 2553 in a timely manner [OR NOT FILED FOR REASONABLE CAUSE]

I/We respectfully XXXXX XXXXX of the fact that “ Section 1362(b)(5) provides that if (A) an election under § 1362(a) is made for any taxable year (determined without regard to § 1362(b)(3)) after the date prescribed by § 1362(b) for making the election for the taxable year or no election is made for any taxable year, and (B) the Secretary determines that there was reasonable cause for the failure to timely make the election, the Secretary may treat the election as timely made for the taxable year (and § 1362(b)(3) shall not apply.”

Rev. Proc. 2003-43, 2003-1 C.B. 998 (2003)

The corporation meets all S-Corporation eligibility criteria, as a domestic corporation, with shareholders being limited to individuals, and not being partnerships, corporations or non-resident aliens. Further, the corporation will not have more than one class of stock nor have more than 100 shareholders. The S-Corp is not in-eligible as it is not an insurance company, financial institution or international sales organization. And finally, the S-Corp agrees to a fiscal (calendar year) that corresponds to the tax year for individual tax returns.

The corporation failed to qualify as an S-Corp solely because it did not file Form 2553 in a timely manner.

Less than 24 months have passed since the original due date of Form 2553.

The corporation [EITHER] (1) has reasonable cause or (2) inadvertently failed to file Form 2553 in a timely manner.

The corporation has not yet filed tax returns for the first tax year for which it intended to file as an S-Corp.

Form 2553 is filed not later than 6 months after the due date, without regard to extensions, of the first tax return for which the corporation intended to file as an S-Corporation.

And finally, Shareholder(s) and other taxpayers have not reported their income in a manner inconsistent with the corporations intention to file as an S-Corporation.

Signed: [ALL SHAREHOLDERS MUST SIGN] _________________________________



Note that the first paragraph have the actual IRC citation that allows this.



Also, note that you have to decide whether to create a "reasonable" cause or simply use the inadvertent late filing cause (which is, given, the timing here, probably cleaner than creating something the might n ot be approved) and that has to be consistent in the opening statement and paragraph 4.



And finally, remember that marking the 2553 itself with "FILED PURSUANT TO REVENUE PROCEDURE 2003-43" is critical, for getting it past the front lines and not being kicked back. You might make the comment , (see attached statement) at the top as well.



And to state the obvious, send certified return receipt.



Lane

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3895
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 4 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.
.... https://docs.google.com/document/d/1TsE1_VfhKNlwcqaSSqlaG_rIsamtbCj8RPqcap0MV9s/edit?usp=sharing...https://www.box.com/s/v6taggpiwe9denjwb3rn.. Lane
Expert:  Lane replied 1 year ago.



https://www.box.com/s/v6taggpiwe9denjwb3rn




https://docs.google.com/document/d/1TsE1_VfhKNlwcqaSSqlaG_rIsamtbCj8RPqcap0MV9s/edit?usp=sharing



Expert:  Lane replied 1 year ago.

Thanks for the feedback.

Be sure you really need to do the S-Corp this way.

You can always elect for next year.

Both are passthroughs.

Both have liability protection.

S-Corp has more administrative "hoops."

Lane

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